Essity 1Q 2021 Results: Adjusted EBITA Down 32 Percent From Year Ago

Net sales declined 18.3 percent to SEK 27,528m (33,712)

• Organic net sales declined 9.9 percent and was negatively impacted by the COVID-19 pandemic and related restrictions and lockdowns, and in comparison the stockpiling in the first quarter of the preceding year.• Market shares increased in many markets for the most recent 12-month period

• E-commerce sales increased organically by 14 percent and accounted for approximately 13 percent of net sales• In emerging markets, which accounted for 39 percent of net sales, organic net sales increased 4.2 percent.• Operating profit before amortization of acquisition-related intangible assets (EBITA) decreased 31 percent to SEK 3,664m (5,316)• Adjusted EBITA decreased 32 percent to SEK 3,608m (5,333)

• Cash flow from current operations was SEK 695m (3,044)

• Entered into agreement with Australian hygiene company Asaleo Care to acquire remaining shares• After the end of the quarter, Essity entered into agreement to acquire approximately 44 percent of the Colombian hygiene company Productos Familia S.A. Essity has also announced price increases due to higher raw material costs.

Improved market conditions resulting from the ongoing vaccination programs are expected to result in increased demand for several of Essity’s product categories. One example of this is the increase in demand in Professional Hygiene in North America in the first two weeks of April 2021. Another example is the recovery in China, where sales were significantly higher during the first quarter of 2021 compared with the first quarter of 2019.

During the first quarter, Essity has continued to position the company for future profitable growth, for example, by:

Entered into an agreement with the Australian hygiene company Asaleo Care to acquire the remaining 63.8 percent of the shares in the company. Essity is the largest shareholder with a holding of 36.2 percent of the shares. The acquisition of Asaleo Care will enable profitable growth in Australia, New Zealand and the Pacific region.
Expanded the offering of reusable products through the launch of TENA Silhouette washable absorbent underwear within Incontinence Products, the Libresse® V-Cup menstrual cup within Feminine Care and the Tork microfiber cleaning cloth within Professional Hygiene.
Increased market shares in many markets over the most recent 12-month period.
E-commerce sales increased organically by 14 percent and accounted for about 13 percent of net sales.

After the end of the first quarter:

Entered into an agreement to acquire approximately 44 percent of the Colombian hygiene company Productos Familia S.A. After closing of the transaction Essity’s ownership in Familia will amount to at least 94 percent. Essity has been an owner in Familia since 1985, and currently owns 50 percent of the company. The purchase price amounts to USD 1,540m (approximately SEK 13bn) for 100 percent of the company on a debt free basis. With the acquisition Essity is building a stronger platform in Latin America.
Essity has also acquired the distribution rights to the wound care technology Sorbact® in Australia and New Zealand.
The Manufacturing Roadmap program extends until 2025 and is expected to contribute to Essity’s total annual cost savings of SEK 500-1,000m through the optimization of the production structure, productivity improvements and raw material and energy savings. These measures facilitate growth without investments increasing at the same pace. Working capital is expected to decrease by more than SEK 1,000m. The objective is to also utilize new production methods to reduce exposure to wood-based fresh-fiber pulp by approximately 10 percent, which will result in reduced volatility for the company’s profitability. The program will also lead to that the company’s sustainability targets within the Science Based Targets will be achieved faster.
Announcement of price increases within Consumer Tissue due to higher raw material costs. These were announced in Essity’s key markets and the percentage increases are on average in the mid to high single digits. Some effect from the price increases is expected already at the end of the second quarter of 2021 but with the main impact in the second half of 2021. Essity is preparing price increases in other product categories impacted by higher raw material costs.

The group’s organic net sales in the first quarter of 2021 declined by 9.9 percent compared with the corresponding period a year ago, of which volume accounted for -8.9 percent and price mix for -1.0 percent. The COVID-19 pandemic with the extensive restrictions and lockdowns had a negative impact on sales, primarily within Professional Hygiene and Medical Solutions. Furthermore, the comparative figures were affected by the strong sales growth that resulted from stockpiling in the first quarter of the preceding year by consumers and distributors. Stockpiling in the first quarter of the preceding year explains approximately half of the reduction in organic net sales. Organic net sales in mature markets declined 18.3 percent. In emerging markets, which accounted for 39 percent of net sales, organic net sales increased 4.2 percent.

The group’s adjusted gross margin for the first quarter of 2021 decreased by 0.6 of a percentage point year on year to 32.2 percent. The gross margin was positively impacted by lower raw material costs and an improved mix. Lower prices, lower volumes and higher distribution costs had a negative impact on the gross margin.

The group’s adjusted EBITA margin decreased 2.7 percentage points to 13.1 percent. The margin was negatively impacted by lower absorption of fixed costs as a result of lower sales. Sales costs decreased in absolute terms but increased as a share of net sales. Investments in growth increased marketing costs in absolute terms and as a percentage of net sales. Adjusted EBITA, excluding exchange rate effects, decreased 24 percent. Adjusted return on capital employed decreased 4.9 percentage points to 13.5 percent. Earnings per share amounted to SEK 3.04.

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